CHAPTER 14. Differential analysis, profitability analysis and capital budgeting CONTENTS

Size: px
Start display at page:

Download "CHAPTER 14. Differential analysis, profitability analysis and capital budgeting CONTENTS"

Transcription

1 CHAPTER 14 Differential analysis, profitability analysis and capital budgeting CONTENTS 14.1 Special order with opportunity costs 14.2 Make or buy decision 14.3 Profitability analysis 14.4 Alternative capital budgeting methods 14.5 Capital expenditure decision

2 14.1 ADDITIONAL PROBLEMS Problem 14.1 Special order with opportunity costs Burn-True Ltd manufactures gas barbecues and is considering expanding production. A distributor has asked the company to produce a special order of 2500 barbecues to be sold in another state. The barbecues would be sold under a different brand name and would not influence Burn-True Ltd s current sales. The plant is currently producing units per year. The company s maximum capacity is units per year, so the company would have to reduce the production of units sold under its own brand name by 500 units if the special order is accepted. The company s statement of financial performance for the previous financial year ended 30 June 2003 is summarised below: Sales ( units) Cost of goods sold: Direct materials Direct labour Factory overhead GROSS PROFIT Selling expenses Administrative expenses BURN-TRUE LTD Statement of Financial Performance for the year ended 30 June 2003 $ $ NET PROFIT $ The company s variable factory overhead is $20 per unit, and the variable selling expenses are $10 per unit. The administrative expenses are completely fixed and would increase by $ if the special order is accepted. There would be no variable selling expenses associated with the special order, and variable factory overhead per unit would remain constant. The company s direct labour cost per unit for the special order would increase 5%, and direct materials cost per unit for the special order would increase 10%. Fixed factory overhead and fixed selling expenses would not change. If the distributor has offered to pay $264 per unit for the special order, should the company accept the offer? Show calculations to support your conclusion.

3 14.2 BURN-TRUE LTD CM special order: Selling price $264 Variable costs: Direct materials $110 Direct labour 84 Variable overhead CM per unit $50 Units Total CM special order $ Less: Increase admin expense $ Less: Opportunity cost CM foregone 500 ($ ) Increase in profit if the order is accepted $ The order should be accepted.

4 14.3 Problem 14.2 Make or buy decision Eazy Watch Pty Ltd manufactures television receivers and is considering ways to utilise what is currently unused plant capacity because it has recently been operating at slightly below 70% of capacity. One proposal is to produce a component used in several of the company s products that is currently being purchased from a supplier for $70 per unit. The company uses components each year. Based on a study by the company s accounting department, the estimated cost of producing each component is as follows: Direct materials $24.00 Direct labour (3 $11.20 per hour) Factory overhead Total $ Factory overhead is applied to all products on the basis of direct labour hours. The expected capacity for the year is 2 direct labour hours. Fixed factory overhead for the year is budgeted at $ A. Should the company continue to purchase the component or produce it internally? What is the cost differential involved? B. The company s sales manager has recommended that a new product should be introduced instead of considering the production of the components. He estimates that the unused plant capacity could be utilised to produce units of the new product, each of which would have an estimated contribution margin of $12. One new machine at a price of $ would be required to produce the new product. The machine has a useful life of units. Would this alternative affect your decision in requirement A? Why? EAZY WATCH PTY LTD A. Relevant costs to manufacture: Direct materials $24.00 Direct labour Variable overhead (1) 6.00 $63.60 Cost to purchase Differential in favour of manufacture $6.40 The company should manufacture the component for a total cost saving of ( $6.40) $ (1) Overhead allocation rate is $24/3 = $8 per DLH Total estimated overhead $8 2 = $ Budgeted fixed overhead Budgeted variable overhead $ Variable overhead per direct labour hour ($ /2) = $2 per direct labour hour. B. Annual CM new product $12 = $ Annual cost of machine ($ /5) Cost savings to manufacture component Net advantage of component production $8 000

5 14.4 Problem 14.3 Profitability analysis Fly-Quick Parcel Co. Ltd operates an overnight package delivery service and is planning the next year s operation. The company s operating assets are estimated to be $ at the beginning of the financial year and $ on 30 June end of financial year. The company anticipates that it will deliver packages during the year. The variable costs per package average $5, and total fixed costs are budgeted at $ A. What price should the company charge to deliver a package to earn a 20% beforetax return on the estimated investment in operating assets? B. Calculate the approximate profit margin earned and turnover of assets expected for the company s next financial year. The company will not have any interest expense. Use the price from requirement A. C. If the company can reduce the variable costs needed to deliver a package by $1.15, what would be the effect on the return on the estimated investment in operating assets? D. If the company actually delivers packages at the price determined in requirement A, what is the company s rate of return on its budgeted average investment in operating assets? E. Refer to requirement A. If the company requires a return on investment of 15%, how much residual profit can be expected for the next financial year? A. B. FLY-QUICK PARCEL CO LTD Average investment ($ $ )/2 = $ Let X = Delivery charge X = 5(40 000) () X = X = $18.60 Profit margin ( $18.60 $5) ($18.60) = = = 25% (rounded) C. D. E. $ Asset turnover = 0.81 ROI (B) $ = 20% ROI (C) ($ ) = 25% An increase of 5% ($18.60 $5) ROI = 17% Operating profit (B) $ Minimum acceptable return (1) Residual profit $ (1) 0.15 ()

6 14.5 Problem 14.4 Alternative capital budgeting methods Lam and Kim Processing Ltd is considering three investments for the new year. The company has a cost of capital of 16%. Summary information concerning the net cash inflows of the investments and their initial costs is shown below: Investment Year A B C $ $ $ Initial cost $( ) $( ) $( ) A. Calculate the payback period for each investment. B. What is the net present value for each investment? C. What is the net present value index for each investment? D. Should any of these investments be accepted? If so, in what order should they be accepted, given limited available funds? LAM AND KIM PROCESSING LTD A. Payback period: Project: A B C $ $ = years $ $ = years $ $ = years B. NPV Project: A: ($70 000) $ = $0 B: ($) $ = $ C: ($) $ = ($29 919) C. Present Value Index Project: A: $ /$ = 1 B: $ /$ = C: $ /$ = D. Project B should be accepted. Projects A and C are not acceptable.

7 14.6 Problem 14.5 Capital expenditure decision Power Electronics Ltd is an engineering consulting company specialising in the installation of highly sophisticated electronic communications systems. The company is considering the purchase of testing equipment that would be used on jobs. The equipment would cost $ and would have no residual value at the end of its 5-year life. Straight-line depreciation would be used if the equipment is purchased. The company s accountant projects revenue and expenses with the operation of the equipment that are equal to the cash inflows and cash outflows associated with it, except for depreciation. A summary of the cash flows expected from the equipment (without considering taxes) is as follows: Year Revenues $ Expenses (excluding depreciation) $ Assume the company s expected tax rate is 30%, and its cost of capital is 12%. A. Calculate the return on average investment for the equipment. B. Determine the annual net cash inflows (after tax) expected from the operation of the equipment. C. Calculate the net present value for the investment. D. Determine the net present value index for the investment. E. Should the testing equipment be purchased?

8 14.7 POWER ELECTRONICS LTD A. Year Net cash Net profit Tax Net profit inflow before Depreciation before 30% after tax depreciation 1 $ $ $ $2 322 $ Total net profit after tax Average net profit after tax $ Return on average investment Average net profit after tax Average investment = 24% B. Year Net profit After back Net cash inflows After tax depreciation after tax 1 $ $ $ C. Year Expected net PVPV cash inflows 12% cash flows (rounded) 1 $ $ Present value cash flows Initial investment Net present value $ D. Net present value index $ = $ $ /2 E. Yes. NPV is positive. Net present value index greater than one. =

Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level

Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level Cambridge International Examinations Cambridge International Advanced Subsidiary and Advanced Level *0123456789* ACCOUNTING 9706/02 Paper 2 Structured Questions For Examination from 2016 SPECIMEN PAPER

More information

1.1 Introduction. Chapter 1: Feasibility Studies: An Overview

1.1 Introduction. Chapter 1: Feasibility Studies: An Overview Chapter 1: Introduction 1.1 Introduction Every long term decision the firm makes is a capital budgeting decision whenever it changes the company s cash flows. Consider launching a new product. This involves

More information

Chapter 8: Fundamentals of Capital Budgeting

Chapter 8: Fundamentals of Capital Budgeting Chapter 8: Fundamentals of Capital Budgeting-1 Chapter 8: Fundamentals of Capital Budgeting Big Picture: To value a project, we must first estimate its cash flows. Note: most managers estimate a project

More information

UNIVERSITY OF BOLTON BUSINESS SCHOOL ACCOUNTANCY SEMESTER 1 EXAMINATION 2015/2016 MANAGEMENT ACCOUNTING AND DECISION MAKING MODULE NO: ACC5002

UNIVERSITY OF BOLTON BUSINESS SCHOOL ACCOUNTANCY SEMESTER 1 EXAMINATION 2015/2016 MANAGEMENT ACCOUNTING AND DECISION MAKING MODULE NO: ACC5002 BBS009 UNIVERSITY OF BOLTON BUSINESS SCHOOL ACCOUNTANCY SEMESTER 1 EXAMINATION 2015/2016 MANAGEMENT ACCOUNTING AND DECISION MAKING MODULE NO: ACC5002 Date: Tuesday 12 th January 2016 Time: 2:00pm to 5:00pm

More information

GVEP Workshop Finance 101

GVEP Workshop Finance 101 GVEP Workshop Finance 101 Nairobi, January 2013 Agenda Introducing business finance Understanding financial statements Understanding cash flow LUNCH Reading and interpreting financial statements Evaluating

More information

LEBANESE ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS MANAGERIAL ACCOUNTING

LEBANESE ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS MANAGERIAL ACCOUNTING LEBANESE ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS MANAGERIAL ACCOUNTING JULY 2015 MULTIPLE CHOICE QUESTIONS (37.5%) Choose the correct answer 1. All of the following statements concerning standard costs

More information

A target cost is arrived at by identifying the market price of a product and then subtracting a desired profit margin from it.

A target cost is arrived at by identifying the market price of a product and then subtracting a desired profit margin from it. Answers Fundamentals Level Skills Module, Paper F5 Performance Management June 2015 Answers Section A 1 C Divisional profit before depreciation = $2 7m x 15% = $405,000 per annum. Less depreciation = $2

More information

1. Operating, Investment and Financial Cash Flows

1. Operating, Investment and Financial Cash Flows 1. Operating, Investment and Financial Cash Flows Solutions Problem 1 During 2005, Myears Oil Co. had gross sales of $1 000,000, cost of goods sold of $400,000, and general and selling expenses of $300,000.

More information

Exercises. Differential Analysis Sell (Alt. 1) or Lease (Alt. 2)

Exercises. Differential Analysis Sell (Alt. 1) or Lease (Alt. 2) Chapter 24 and Product Pricing Study Guide Solutions Fill-in-the-Blank Equations 1. Differential revenue 2. Differential costs 3. Differential income (Loss) 4. Markup per unit 5. Estimated units produced

More information

CHAPTER 25. P.25.16 The following data are furnished by the Hypothetical Leasing Ltd (HLL):

CHAPTER 25. P.25.16 The following data are furnished by the Hypothetical Leasing Ltd (HLL): CHAPTER 25 Solved Problems P.25.16 The following data are furnished by the Hypothetical Leasing Ltd (HLL): Investment cost Rs 500 lakh Primary lease term 5 years Estimated residual value after the primary

More information

tutor2u tutor2u Interactive Business Simulations Finance: Cash Flow Management

tutor2u tutor2u Interactive Business Simulations Finance: Cash Flow Management Interactive Business Simulations Finance: Cash Flow Management Note: this interactive simulator is designed to be viewed using an up-to-date internet browser. Users must also have Macromedia Flash Player

More information

27Forecasting cash flows 27Activity 27.1 open-ended question.

27Forecasting cash flows 27Activity 27.1 open-ended question. 27Forecasting cash flows 27Activity 27.1 open-ended question. Activity 27.2 (page 497): April cash flow 1 Draw up a revised cash-flow forecast for April assuming: cash sales are forecast to be $1,000 higher

More information

ICASL - Business School Programme

ICASL - Business School Programme ICASL - Business School Programme Quantitative Techniques for Business (Module 3) Financial Mathematics TUTORIAL 2A This chapter deals with problems related to investing money or capital in a business

More information

Management Accounting 2 nd Year Examination

Management Accounting 2 nd Year Examination Management Accounting 2 nd Year Examination August 2013 Exam Paper, Solutions & Examiner s Report NOTES TO USERS ABOUT THESE SOLUTIONS The solutions in this document are published by Accounting Technicians

More information

Chapter 011 Project Analysis and Evaluation

Chapter 011 Project Analysis and Evaluation Multiple Choice Questions 1. Forecasting risk is defined as the: a. possibility that some proposed projects will be rejected. b. process of estimating future cash flows relative to a project. C. possibility

More information

MARK SCHEME for the October/November 2008 question paper 9706 ACCOUNTING

MARK SCHEME for the October/November 2008 question paper 9706 ACCOUNTING www.xtremepapers.com UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS GCE Advanced Subsidiary Level and GCE Advanced Level MARK SCHEME for the October/November 2008 question paper 9706 ACCOUNTING 9706/04

More information

BASIC CONCEPTS AND FORMULAE

BASIC CONCEPTS AND FORMULAE 12 Marginal Costing BASIC CONCEPTS AND FORMULAE Basic Concepts 1. Absorption Costing: a method of costing by which all direct cost and applicable overheads are charged to products or cost centers for finding

More information

OPERATIONAL CASE STUDY PRACTICE EXAM ANSWERS

OPERATIONAL CASE STUDY PRACTICE EXAM ANSWERS OPERATIONAL CASE STUDY PRACTICE EXAM ANSWERS The Practice Exam can be viewed at http://www.pearsonvue.com/cima/practiceexams/ These answers have been provided by CIMA for information purposes only. The

More information

AGENDA: JOB-ORDER COSTING

AGENDA: JOB-ORDER COSTING TM 3-1 AGENDA: JOB-ORDER COSTING A. The documents in a job-order costing system. 1. Materials requisition form. 2. Direct labor time ticket. 3. Job cost sheet. B. Applying overhead using a predetermined

More information

Do you need a Module Chapter to Read Lecture to View Problem Assignment Calculator for the Test? 1 1 1 None No. 2 2 2 Problems from Ch.

Do you need a Module Chapter to Read Lecture to View Problem Assignment Calculator for the Test? 1 1 1 None No. 2 2 2 Problems from Ch. Syllabus Financial Statement Analysis 1 Purpose and Learning Objectives This is an introductory course in financial (accounting) statements and their analysis. It reviews the basic financial statements,

More information

Paper F7 (INT) Financial Reporting (International) Wednesday 5 June 2013. Fundamentals Level Skills Module

Paper F7 (INT) Financial Reporting (International) Wednesday 5 June 2013. Fundamentals Level Skills Module Fundamentals Level Skills Module Financial Reporting (International) Wednesday 5 June 2013 Time allowed Reading and planning: Writing: 15 minutes 3 hours ALL FIVE questions are compulsory and MUST be attempted.

More information

PRODUCTION BUDGET Budgeted sales + desired ending inventory beginning inventory = required production

PRODUCTION BUDGET Budgeted sales + desired ending inventory beginning inventory = required production PARTS 3 and 4: Master Budget Formulas SALES BUDGET Forecasted units sold x selling price = total sales PRODUCTION BUDGET Budgeted sales + desired ending inventory beginning inventory = required production

More information

MASTER BUDGET - EXAMPLE

MASTER BUDGET - EXAMPLE MASTER BUDGET - EXAMPLE Sales IN UNITS for the previous two months (of last quarter), as well as the sales forecast for next quarter are as follows: Sales Budget Units May sales (ACTUAL) 20 June sales

More information

General Certificate of Education Advanced Level Examination June 2013

General Certificate of Education Advanced Level Examination June 2013 General Certificate of Education Advanced Level Examination June 2013 Accounting ACCN4 Unit 4 Further Aspects of Management Accounting Monday 10 June 2013 1.30 pm to 3.30 pm For this paper you must have:

More information

PBL: Accounting for Professionals. Competency: Accounts Concepts, Principles, Terminology

PBL: Accounting for Professionals. Competency: Accounts Concepts, Principles, Terminology Competency: Accounts Concepts, Principles, Terminology 1. Identify and apply Generally Accepted Accounting Principles (GAAP). 2. Apply the steps in the Accounting cycle. 3. Post and analyze transactions

More information

Short Term Finance and Planning. Sources and Uses of Cash

Short Term Finance and Planning. Sources and Uses of Cash Short Term Finance and Planning (Text reference: Chapter 27) Topics sources and uses of cash operating cycle and cash cycle short term financial policy cash budgeting short term financial planning AFM

More information

Cost Benefits analysis

Cost Benefits analysis Cost Benefits analysis One of the key items in any business case is an analysis of the costs of a project that includes some consideration of both the cost and the payback (be it in monetary or other terms).

More information

Questions 1, 3 and 4 gained reasonable average marks, whereas Question 2 was poorly answered, especially parts (b),(c) and (f).

Questions 1, 3 and 4 gained reasonable average marks, whereas Question 2 was poorly answered, especially parts (b),(c) and (f). General Comments This sitting produced a reasonable pass rate for a resit paper although there was a large variation in pass rates between centres. It was clear that well-prepared candidates did not have

More information

Financial statements of limited companies profit and loss account

Financial statements of limited companies profit and loss account 11_1276MH_C03_Rev 4/3/05 11:51 am Page 76 76 CHAPTER 3 FINANCIAL STATEMENTS OF LIMITED COMPANIES PROFIT AND LOSS ACCOUNT 3 Financial statements of limited companies profit and loss account Contents Learning

More information

MBA Data Analysis Pad John Beasley

MBA Data Analysis Pad John Beasley 1 Marketing Analysis Pad - 1985 Critical Issue: Identify / Define the Problem: Objectives: (Profitability Sales Growth Market Share Risk Diversification Innovation) Company Mission: (Source & Focus for

More information

(Relevant to AAT Examination Paper 4 Business Economics and Financial Mathematics)

(Relevant to AAT Examination Paper 4 Business Economics and Financial Mathematics) Capital Budgeting: Net Present Value vs Internal Rate of Return (Relevant to AAT Examination Paper 4 Business Economics and Financial Mathematics) Y O Lam Capital budgeting assists decision makers in a

More information

Feasibility Study Requirements. Qatar Development Bank

Feasibility Study Requirements. Qatar Development Bank Feasibility Study Requirements Qatar Development Bank i. Feasibility Study Requirements The Feasibility study should ideally encompass the following areas / sections A. Executive Summary. B. Project details

More information

Accounting 2910, Summer 2002 Practice Exam 4. 1. The cost of materials entering directly into the manufacturing process is classified as:

Accounting 2910, Summer 2002 Practice Exam 4. 1. The cost of materials entering directly into the manufacturing process is classified as: Accounting 2910, Summer 2002 Practice Exam 4 1. The cost of materials entering directly into the manufacturing process is classified as: a. direct labor cost b. factory overhead cost c. burden cost d.

More information

For personal use only GALE PACIFIC LIMITED

For personal use only GALE PACIFIC LIMITED GALE PACIFIC LIMITED RESULTS FOR YEAR ENDED 30 JUNE 2013 FY13 Review FY13 FY12 FY11 A$M S A$M S % Variance A$M S Sales 120.0 110.5 9% 95.6 EBITDA 18.0 18.0 0% 15.8 EBIT 12.9 12.5 4% 9.9 NPAT 9.1 8.5 7%

More information

C01-Fundamentals of management accounting

C01-Fundamentals of management accounting Sample Exam Paper Question 1 Which of the following words DOES NOT describe a main focus of management accounting? A. Planning B. Control C. External D. Decision-making Question 2 CIMA defines management

More information

Why Use Net Present Value? The Payback Period Method The Discounted Payback Period Method The Average Accounting Return Method The Internal Rate of

Why Use Net Present Value? The Payback Period Method The Discounted Payback Period Method The Average Accounting Return Method The Internal Rate of 1 Why Use Net Present Value? The Payback Period Method The Discounted Payback Period Method The Average Accounting Return Method The Internal Rate of Return Problems with the IRR Approach The Profitability

More information

6. Financial Planning. Break-even. Operating and Financial Leverage.

6. Financial Planning. Break-even. Operating and Financial Leverage. 6. Financial Planning. Break-even. Operating and Financial Leverage. Financial planning primarily involves anticipating the impact of operating, investment and financial decisions on the firm s future

More information

Course 3: Capital Budgeting Analysis

Course 3: Capital Budgeting Analysis Excellence in Financial Management Course 3: Capital Budgeting Analysis Prepared by: Matt H. Evans, CPA, CMA, CFM This course provides a concise overview of capital budgeting analysis. This course is recommended

More information

Marginal and. this chapter covers...

Marginal and. this chapter covers... 7 Marginal and absorption costing this chapter covers... This chapter focuses on the costing methods of marginal and absorption costing and compares the profit made by a business under each method. The

More information

Cash Flow Analysis. 15.511 Corporate Accounting Summer 2004. Professor SP Kothari. Sloan School of Management Massachusetts Institute of Technology

Cash Flow Analysis. 15.511 Corporate Accounting Summer 2004. Professor SP Kothari. Sloan School of Management Massachusetts Institute of Technology Cash Flow Analysis 15.511 Corporate Accounting Summer 2004 Professor SP Kothari Sloan School of Management Massachusetts Institute of Technology June 16, 2004 1 Statement of Cash Flows Reports operating

More information

Unit 2: Finance for Business

Unit 2: Finance for Business Unit 2: Finance for Business Level: 1 and 2 Unit type: Core Guided learning hours: 30 Assessment type: External Unit introduction All businesses have to spend money before they can make a profit, and when

More information

Coimisiún na Scrúduithe Stáit State Examinations Commission. Leaving Certificate 2014. Marking Scheme. Accounting. Higher Level

Coimisiún na Scrúduithe Stáit State Examinations Commission. Leaving Certificate 2014. Marking Scheme. Accounting. Higher Level Coimisiún na Scrúduithe Stáit State Examinations Commission Leaving Certificate 2014 Marking Scheme Accounting Higher Level Note to teachers and students on the use of published marking schemes Marking

More information

Paper P1 Performance Operations Post Exam Guide September 2010 Exam

Paper P1 Performance Operations Post Exam Guide September 2010 Exam General Comments This was the second sitting of the new P1 syllabus and candidate performance was generally better than that achieved in the May diet. There were however still core areas of the syllabus

More information

How To Calculate Discounted Cash Flow

How To Calculate Discounted Cash Flow Chapter 1 The Overall Process Capital Expenditures Whenever we make an expenditure that generates a cash flow benefit for more than one year, this is a capital expenditure. Examples include the purchase

More information

PRODUCTIVITY & GROWTH

PRODUCTIVITY & GROWTH Productivity Financial Tools There are a number of financial tools that can be used to measure the financial performance and potential contribution of improvement projects to the productivity of a business.

More information

Activity 28.1 (page 509): Types of costs. Business Indirect cost Explanation. digger

Activity 28.1 (page 509): Types of costs. Business Indirect cost Explanation. digger 28Costs Activity 28.1 (page 509): Types of costs 1 Identify one indirect cost for each of these businesses: a building firm a high-street bank a TV repairer an oil-fired power station. [4] 2 Explain why

More information

C02-Fundamentals of financial accounting

C02-Fundamentals of financial accounting Sample Exam Paper Question 1 The difference between an income statement and an income and expenditure account is that: A. An income and expenditure account is an international term for an Income statement.

More information

how to finance the business

how to finance the business A DV I C E B O O K L E T how to finance the business HOW TO FINANCE THE BUSINESS Getting enough of the right funding is one of the more difficult tasks that you will face as a new entrepreneur. Typically,

More information

SU 8: Responsibility Accounting and Performance Measures 415. 8.5 Financial Measures

SU 8: Responsibility Accounting and Performance Measures 415. 8.5 Financial Measures SU 8: Responsibility Accounting and Performance Measures 415 8.5 Financial Measures 57. A firm earning a profit can increase its return on investment by A. Increasing sales revenue and operating expenses

More information

Preparing a Successful Financial Plan

Preparing a Successful Financial Plan Topic 9 Preparing a Successful Financial Plan LEARNING OUTCOMES By the end of this topic, you should be able to: 1. Describe the overview of accounting methods; 2. Prepare the three major financial statements

More information

What is a Balance Sheet?

What is a Balance Sheet? What is a Balance Sheet? A Balance Sheet is a financial statement which shows the ASSETS, LIABILITIES and CAPITAL of a business on a particular date. Assets Are Are items owned by by the the business or

More information

Chapter 9 Net Present Value and Other Investment Criteria Chapter Organization

Chapter 9 Net Present Value and Other Investment Criteria Chapter Organization T9.1 Chapter Outline Chapter 9 Net Present Value and Other Investment Criteria Chapter Organization! 9.1 Net Present Value! 9.2 The Payback Rule! 9.3 The Average Accounting Return! 9.4 The Internal Rate

More information

Process Cutting Heating Assembly Hrs per unit 2 3 4 Total hours available 100,000 120,000 220,000

Process Cutting Heating Assembly Hrs per unit 2 3 4 Total hours available 100,000 120,000 220,000 RELEVANT TO ACCA QUALIFICATION PAPER F5 AND PERFORMANCE OBJECTIVES 12, 13 AND 14 Throughput accounting and the theory of constraints In the previous article, I told you all about The Goal, the book in

More information

Income Measurement and Profitability Analysis

Income Measurement and Profitability Analysis PROFITABILITY ANALYSIS The following financial statements for Spencer Company will be used to demonstrate the calculation of the various ratios in profitability analysis. Spencer Company Comparative Balance

More information

Unit Title: Managerial Accounting Unit Reference Number: D/502/4812 Guided Learning Hours: 160 Level: Level 5 Number of Credits: 18

Unit Title: Managerial Accounting Unit Reference Number: D/502/4812 Guided Learning Hours: 160 Level: Level 5 Number of Credits: 18 Unit Title: Managerial Accounting Unit Reference Number: D/502/4812 Guided Learning Hours: 160 Level: Level 5 Number of Credits: 18 Unit objective and aim(s): This unit aims to give learners a comprehensive

More information

Building a financial perspective into an engineering program

Building a financial perspective into an engineering program Building a financial perspective into an engineering program P.J.Gregory Department of Mechanical Engineering, Monash University, Clayton Campus, Victoria, Australia (Peter.gregory@eng.monash.edu.au) Abstract

More information

How To Calculate A Profit From A Machine Shop

How To Calculate A Profit From A Machine Shop CHAPTER 21 CAPITAL BUDGETING AND COST ANALYSIS 21-20 Capital budgeting with uneven cash flows, no income taxes. 1. Present value of savings in cash operating costs: $10,000 0.862 $ 8,620 8,000 0.743 5,944

More information

International Financial Reporting Standards (IFRS)

International Financial Reporting Standards (IFRS) FACT SHEET September 2011 IAS 7 Statement of Cash Flows (This fact sheet is based on the standard as at 1 January 2010.) Important note: This fact sheet is based on the requirements of the International

More information

DUKE UNIVERSITY Fuqua School of Business. FINANCE 351 - CORPORATE FINANCE Problem Set #1 Prof. Simon Gervais Fall 2011 Term 2.

DUKE UNIVERSITY Fuqua School of Business. FINANCE 351 - CORPORATE FINANCE Problem Set #1 Prof. Simon Gervais Fall 2011 Term 2. DUKE UNIVERSITY Fuqua School of Business FINANCE 351 - CORPORATE FINANCE Problem Set #1 Prof. Simon Gervais Fall 2011 Term 2 Questions 1. Two years ago, you put $20,000 dollars in a savings account earning

More information

Chapter. Statement of Cash Flows For Single Company

Chapter. Statement of Cash Flows For Single Company Chapter 4 Statement of Cash Flows For Single Company 4.1 Single company statement of cash flows Statement of cash flows are primary financial statements and are required along side the income statement

More information

Net Present Value and Capital Budgeting. What to Discount

Net Present Value and Capital Budgeting. What to Discount Net Present Value and Capital Budgeting (Text reference: Chapter 7) Topics what to discount the CCA system total project cash flow vs. tax shield approach detailed CCA calculations and examples project

More information

The Basic Framework of Budgeting

The Basic Framework of Budgeting Master Budgeting 1 The Basic Framework of Budgeting A budget is a detailed quantitative plan for acquiring and using financial and other resources over a specified forthcoming time period. 1. The act of

More information

CHAPTER 8 CAPITAL BUDGETING DECISIONS

CHAPTER 8 CAPITAL BUDGETING DECISIONS CHAPTER 8 CAPITAL BUDGETING DECISIONS Q1. What is capital budgeting? Why is it significant for a firm? A1 A capital budgeting decision may be defined as the firm s decision to invest its current funds

More information

NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY

NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY NATIONAL UNIVERSITY OF SCIENCE AND TECHNOLOGY FACULTY OF COMMERCE GENERAL MASTERS IN BUSINESS ADMINISTRATION MANAGERIAL ACCOUNTING GMB 562 FINAL EXAMINATION 11 DECEMBER 2003 TIME ALLOWED: 3 HOURS + 30

More information

SAMPLE BUSINESS PLAN TEMPLATE <<COMPANY LOGO>> <<COMPANY NAME>> BUSINESS PLAN. <<Prepared by: >> <<Date>>

SAMPLE BUSINESS PLAN TEMPLATE <<COMPANY LOGO>> <<COMPANY NAME>> BUSINESS PLAN. <<Prepared by: >> <<Date>> SAMPLE BUSINESS PLAN TEMPLATE BUSINESS PLAN Table of Contents Page Confidentiality Agreement ii 1) Executive Summary 1 2) Company Description

More information

Using Accounts to Interpret Performance

Using Accounts to Interpret Performance Using s to Interpret Performance ing information is used by stakeholders to judge the performance and efficiency of a business Different stakeholders will look for different things: STAKEHOLDER Shareholders

More information

Management Accounting 2 nd Year Examination

Management Accounting 2 nd Year Examination Management Accounting 2 nd Year Examination August 2012 Exam Paper, Solutions & Examiner s Report NOTES TO USERS ABOUT THESE SOLUTIONS The solutions in this document are published by Accounting Technicians

More information

JUNE 2012 EXAMINATION. D2. Business Finance. Answer ALL THREE questions. Question 1: 20 marks available. Question 2: 30 marks available

JUNE 2012 EXAMINATION. D2. Business Finance. Answer ALL THREE questions. Question 1: 20 marks available. Question 2: 30 marks available 1 JUNE 2012 EXAMINATION D2. Business Finance Instructions to candidates 1. Time allowed is 3 hours and 10 minutes, which includes 10 minutes reading time. 2. This is a closed book examination. 3. Use of

More information

GCSE Business Studies. Ratios. For first teaching from September 2009 For first award in Summer 2011

GCSE Business Studies. Ratios. For first teaching from September 2009 For first award in Summer 2011 GCSE Business Studies Ratios For first teaching from September 2009 For first award in Summer 2011 Ratios At the end of this unit students should be able to: Interpret and analyse final accounts and balance

More information

Chapter 6 Statement of Cash Flows

Chapter 6 Statement of Cash Flows Chapter 6 Statement of Cash Flows The Statement of Cash Flows describes the cash inflows and outflows for the firm based upon three categories of activities. Operating Activities: Generally include transactions

More information

University of Waterloo Final Examination

University of Waterloo Final Examination University of Waterloo Final Examination Term: Winter Year: 2006 Student Name UW Student ID Number Place an X by the section in which you are registered: 1 (MWF 8:30 am to 9:20 am) 2 (MWF 9:30 am to 10:20

More information

ITU / BDT- COE workshop. Network Planning. Business Planning. Lecture NP- 3.5. Nairobi, Kenya, 7 11 October 2002

ITU / BDT- COE workshop. Network Planning. Business Planning. Lecture NP- 3.5. Nairobi, Kenya, 7 11 October 2002 ITU / BDT- COE workshop Nairobi, Kenya, 7 11 October 2002 Network Planning Lecture NP- 3.5 Business Planning October 8th ITU/BDT-COE Network Planning/ Business Planning - O.G.S. Lecture NP - 3.5 - slide

More information

Fundamentals Level Skills Module, Paper F5. Section B

Fundamentals Level Skills Module, Paper F5. Section B Answers Fundamentals Level Skills Module, Paper F5 Performance Management September/December 2015 Answers Section B 1 (a) Target costing steps Deriving a target cost Step 1: A product or service is developed

More information

1. A set of procedures for controlling cash payments by preparing and approving vouchers before payments are made is known as a voucher system.

1. A set of procedures for controlling cash payments by preparing and approving vouchers before payments are made is known as a voucher system. Accounting II True/False Indicate whether the sentence or statement is true or false. 1. A set of procedures for controlling cash payments by preparing and approving vouchers before payments are made is

More information

Flexible budgeting and cost behaviours

Flexible budgeting and cost behaviours Flexible ing and cost behaviours flexible makes a comparison between an original and actual results. Variances are then calculated to measure how the business has performed in a period. group of friends

More information

COST AND MANAGEMENT ACCOUNTING

COST AND MANAGEMENT ACCOUNTING EXECUTIVE PROGRAMME COST AND MANAGEMENT ACCOUNTING SAMPLE TEST PAPER (This test paper is for practice and self study only and not to be sent to the institute) Time allowed: 3 hours Maximum marks : 100

More information

EVALUATING CAPITAL INVESTMENTS IN AGRIBUSINESS

EVALUATING CAPITAL INVESTMENTS IN AGRIBUSINESS EVALUATING CAPITAL INVESTMENTS IN AGRIBUSINESS Technological advancements impact the agribusiness industry in a very irregular fashion. Given the difficulties associated with predicting the arrival and/or

More information

This resource provides an example of. an activity for a topic within Theme 2.

This resource provides an example of. an activity for a topic within Theme 2. Planning Click to edit activity: Master Theme title style 2 Click to edit Master text styles This resource provides an example of an activity for a topic within Theme 2. The Planning Activity document

More information

ACG 3024 Accounting for Non-Financial Majors Homework Portfolio Study Guide

ACG 3024 Accounting for Non-Financial Majors Homework Portfolio Study Guide ACG 3024 Accounting for Non-Financial Majors Homework Portfolio Study Guide These are similar questions with the answers to help guide you when preparing the Homework Portfolio that you will upload to

More information

COST CLASSIFICATION AND COST BEHAVIOR INTRODUCTION

COST CLASSIFICATION AND COST BEHAVIOR INTRODUCTION COST CLASSIFICATION AND COST BEHAVIOR INTRODUCTION LESSON# 1 Cost Accounting Cost Accounting is an expanded phase of financial accounting which provides management promptly with the cost of producing and/or

More information

Chapter 1 Financial Statement and Cash Flow Analysis

Chapter 1 Financial Statement and Cash Flow Analysis Chapter 1 Financial Statement and Cash Flow Analysis MULTIPLE CHOICE 1. Which of the following items can be found on an income statement? a. Accounts receivable b. Long-term debt c. Sales d. Inventory

More information

The early part of the article explains in detail the nature and purpose of Depreciation as a book-keeping and accounting concept.

The early part of the article explains in detail the nature and purpose of Depreciation as a book-keeping and accounting concept. Depreciation Editorial This months students' newsletter focuses on the concept of Depreciation a knowledge of which is essential to those studying Manual Book-Keeping Level 3 and the Level 3 Computerised

More information

P2 Performance Management September 2014 examination

P2 Performance Management September 2014 examination Management Level Paper P2 Performance Management September 2014 examination Examiner s Answers Note: Some of the answers that follow are fuller and more comprehensive than would be expected from a well-prepared

More information

December 2013 exam. (4CW) SME cash and working capital. Instructions to students. reading time.

December 2013 exam. (4CW) SME cash and working capital. Instructions to students. reading time. 1 December 2013 exam (4CW) SME cash and working capital Instructions to students 1. Time allowed is 3 hours and 10 minutes, which includes 10 minutes reading time. 2. This is a closed book exam. 3. Use

More information

Paper P2 (UK) Corporate Reporting (United Kingdom) September/December 2015. Professional Level Essentials Module

Paper P2 (UK) Corporate Reporting (United Kingdom) September/December 2015. Professional Level Essentials Module Professional Level Essentials Module Corporate Reporting (United Kingdom) September/December 2015 Time allowed Reading and planning: Writing: 15 minutes 3 hours This question paper is divided into two

More information

What is a cost? What is an expense?

What is a cost? What is an expense? What is a cost? What is an expense? A cost is a sacrifice of resources. An expense is a cost incurred in the process of generating revenues. Expenses are recorded at the same time that the associated revenues

More information

FI3300 Corporation Finance

FI3300 Corporation Finance Learning Objectives FI3300 Corporation Finance Spring Semester 2010 Dr. Isabel Tkatch Assistant Professor of Finance Explain the objectives of financial statement analysis and its benefits for creditors,

More information

Accounting Building Business Skills. Learning Objectives. Learning Objectives. Paul D. Kimmel

Accounting Building Business Skills. Learning Objectives. Learning Objectives. Paul D. Kimmel Accounting Building Business Skills Paul D. Kimmel Chapter Eight: Reporting and Analysing Non-current assets PowerPoint presentation by Christine Langridge Swinburne University of Technology, Lilydale

More information

CHAPTER 4. FINANCIAL STATEMENTS

CHAPTER 4. FINANCIAL STATEMENTS CHAPTER 4. FINANCIAL STATEMENTS Accounting standards require statements that show the financial position, earnings, cash flows, and investment (distribution) by (to) owners. These measurements are reported,

More information

hp calculators HP 17bII+ Net Present Value and Internal Rate of Return Cash Flow Zero A Series of Cash Flows What Net Present Value Is

hp calculators HP 17bII+ Net Present Value and Internal Rate of Return Cash Flow Zero A Series of Cash Flows What Net Present Value Is HP 17bII+ Net Present Value and Internal Rate of Return Cash Flow Zero A Series of Cash Flows What Net Present Value Is Present Value and Net Present Value Getting the Present Value And Now For the Internal

More information

Business Name. Business Plan

Business Name. Business Plan Business Name Business Plan BUSINESS PROFILE What business are you in? Provide a general outline of your business, sufficient for outsiders to fully understand what your business is all about. Which industry

More information

Paper F5. Performance Management. Specimen Exam applicable from December 2014. Fundamentals Level Skills Module

Paper F5. Performance Management. Specimen Exam applicable from December 2014. Fundamentals Level Skills Module Fundamentals Level Skills Module Performance Management Specimen Exam applicable from December 2014 Time allowed Reading and planning: 15 minutes Writing: 3 hours This paper is divided into two sections:

More information

Understanding Variance Analysis By: Helen O Brien Gately B Comm; MAcc; FCA. Examiner: Formation 2 Management Accounting

Understanding Variance Analysis By: Helen O Brien Gately B Comm; MAcc; FCA. Examiner: Formation 2 Management Accounting Understanding Variance Analysis By: Helen O Brien Gately B Comm; MAcc; FCA. Examiner: Formation 2 Management Accounting It often appears that students who experience difficulties with variance analysis

More information

Multiple Choice Questions (45%)

Multiple Choice Questions (45%) Multiple Choice Questions (45%) Choose the Correct Answer 1. The following information was taken from XYZ Company s accounting records for the year ended December 31, 2014: Increase in raw materials inventory

More information

Chapter 9. Year Revenue COGS Depreciation S&A Taxable Income After-tax Operating Income 1 $20.60 $12.36 $1.00 $2.06 $5.18 $3.11

Chapter 9. Year Revenue COGS Depreciation S&A Taxable Income After-tax Operating Income 1 $20.60 $12.36 $1.00 $2.06 $5.18 $3.11 Chapter 9 9-1 We assume that revenues and selling & administrative expenses will increase at the rate of inflation. Year Revenue COGS Depreciation S&A Taxable Income After-tax Operating Income 1 $20.60

More information

KB 2 Business Management Accounting Suggested Answers and Marking Guide

KB 2 Business Management Accounting Suggested Answers and Marking Guide KB 2 Business Management Accounting Suggested Answers and 1 SECTION 1 Question 01 Relevant learning outcome/s: 1.1.1 Assess the key features of the absorption costing method and the ABC method. 1.1.2 Demonstrate

More information

Checklists for Going into Business

Checklists for Going into Business Checklists for Going into Business Modified by NCF: October 2003 Checklists for Going into Business Summary Thinking of owning and managing your own business? It s a good idea provided you know what it

More information

Your business plan. helping you with your business planning and forecasting. Name of business. Date when completed

Your business plan. helping you with your business planning and forecasting. Name of business. Date when completed Your business plan helping you with your business planning and forecasting Name of business Date when completed Please read the following notes before completing the form. (You may wish to talk to an accountant

More information

Management control systems

Management control systems Management control systems Question IM 16.1 Intermediate Question IM 16.2 Intermediate Question IM 16.3 Intermediate Question IM 16.4 Question IM 16.5 You have applied for the position of assistant accountant

More information

Professional Level Skills Module, Paper P4

Professional Level Skills Module, Paper P4 Answers Professional Level Skills Module, Paper P4 Advanced Financial Management December 2011 Answers 1 Up to 4 professional marks are available for the presentation of the answer, which should be in

More information